Climate change & travel insurance

Climate Change and Travel Insurance
Adapt or perish

Climate change is having far-reaching effects around the planet, giving travellers cause for concern about many of the destinations they visit and travel insurers lots to think about when it comes to adapting their risk appetite. Robin Gauldie assesses the state of play

In disaster movies, climate change cataclysm always comes implausibly quickly. Roland Emmerich's blockbuster The Day After Tomorrow (2004) depicts a vast tsunami engulfing the skyscrapers of New York followed by, for good measure, a global blizzard that plunges whole continents into a new Ice Age overnight.

In reality, climate chaos is a more gradual process. But only the most stubborn denialists (such as US President Donald Trump) still argue that it is not a reality. The Intergovernmental Panel on Climate Change (IPCC) says credible science now indicates that it is coming sooner rather than later.

Charting change

“Climate change is running faster than we are and we must catch up sooner rather than later, before it is too late,” warned United Nations Secretary General Antonio Guterres, speaking at the UN COP24 Climate Summit in Katowice, Poland, in December. At the same event, World Bank CEO Kristalina Georgieva announced that half of its US$100 billion climate change budget for 2021-2025 will be spent on projects aimed at reducing the impact of floods, storms and drought – a significant increase on the five per cent of global funding spent on such action in previous years. Also speaking at the Summit, Professor Patrick Verkooijen, Chief Executive of the Netherlands-based Global Centre on Adaptation, described climate extremes as 'the new normal'.

According to the latest US National Climate Assessment, prepared by 13 federal agencies and released in November 2018, climate change impacts are intensifying across the US. “This report shows it [climate change] is already happening where we live, not on far off islands or at the poles,” said one of the report's authors, quoted in British newspaper The Guardian.

In the UK, five of the six wettest years on record have happened since 2000, according to the Association of British Insurers. Worldwide, 2014 to 2017 were the four hottest years ever recorded.

Climate change is running faster than we are and we must catch up before it is too late

So we are no longer thinking in terms of centuries, or even decades: our warming globe is already experiencing increasingly severe climate-related events, such as cyclones and hurricanes. These, and other events such as heatwaves, floods, firestorms, mudslides and avalanches, appear to be not only more frequent, but affecting parts of the world where they were historically less common.

Last year alone, Typhoon Jebi became the worst storm to hit Japan in 25 years, and Hurricane Florence, which struck the US eastern seaboard in September, cost global reinsurer Munich Re around €300 million, according to the company's third-quarter 2018 report. Munich Re's Chief Financial Officer Jorg Schneider spoke of 'a series of major natural catastrophes still continuing into the fourth quarter' of 2018.

The October 2018 Global Catastrophe Recap from AON highlighted the impact of Hurricane Michael, which left at least 45 people dead in Florida and other southern US states with economic losses of more than $15 billion and costs to insurers of at least $8 billion. A 'complex severe weather outbreak' killed nearly 30 people in Italy in late October and caused economic losses likely to exceed $3.4 billion.

Wildfires killed up to 100 people in Attica, Greece, in July, within sight of Greece's capital – one of the world's most high-profile tourism destinations – and within a few kilometres of Athens's international airport and the busy ferry port of Rafina. In August, wildfires swept through forested hills just a few minutes' drive from the resorts of the Algarve, Portugal's most popular beach resort region, and the toll from the wildfires that swept the US state of California in November amounted to at least 88 dead. According to the latest US National Climate Assessment, climate change has almost doubled the area affected by wildfires in western US states.

The EU's Commission for Humanitarian Aid and Crisis Management, Christos Stylianides, has been quoted as saying that Europe and the world face 'a new reality'. The EU must be better prepared to respond to 'multiple disasters across the continent', he said, following the Greek and Portuguese wildfires.

But fires are not the only problem. Climate change is already triggering other potential cataclysms; retreating ice along the coastlines of Greenland, Patagonia, northern Norway and Alaska increases the risk of vast rockslides that, in turn, can cause tsunami-like waves like the 200-metre surge that swept part of the Alaskan coast during 2015, when the collapse of part of the Tyndall Glacier tipped 180 million tonnes of rock into the fjord below. 

According to researchers at the University of Geneva, avalanches in popular Himalayan trekking regions such as Ladakh have increased in terms of frequency and intensity in recent decades. “From the second half of the twentieth century, there has been an increase in the number of avalanches, both in terms of frequency and intensity. The frequency has risen from one event per decade to almost one event every year. Avalanches are bigger, travel greater distances, and are triggered earlier in the year,” their report states. “Avalanches are a natural phenomenon and occur repeatedly in mountain areas; nonetheless, rising temperatures are altering their triggering.”

Adapting to change

This is not just an issue for property insurers and the reinsurance sector. Inevitably, it is beginning to have an impact on travel insurers and the worldwide travel industry. Weather events and natural disasters now surpass terrorism as the top trip cancellation concern for US travellers, according to travel insurance comparison site Squaremouth. “Major natural disasters, such as hurricanes Florence and Michael and the California wildfires, had more travellers worried about having to cancel their trips unexpectedly. The number of travellers who bought travel insurance in 2018 specifically for weather or a natural disaster increased by 13 per cent over last year,” Squaremouth stated in its review of the year.

Almost by definition, adventure travel operators take clients to parts of the world (like the Himalayas or the Arctic) where climate conditions are already extreme and where climate change has perhaps the most obvious impact, and that could affect how adventure outfitters and insurers classify destinations and activities in terms of risk. According to the Adventure Travel Trade Association (ATTA), climate change-related hazards – ranging from calving and receding glaciers to wildfires, flash floods and increasingly erratic weather – are affecting the day-to-day operations of adventure outfitters, forcing them to re-evaluate itineraries and take extra precautions to ensure client safety in destinations such as Alaska, Canada and Patagonia.

In the UK, there have been five of the six wettest years on record since 2000

However, mainstream tourism destination regions are also vulnerable and – because of the numbers of clients involved – potentially costly for insurers in terms of curtailment and cancellation compensation. In October 2018 (long after the end of the 'traditional' hurricane season), Hurricane Willa intensified almost overnight into a major storm headed for Mexico's popular Pacific coast, and was officially named as a hurricane on 20 October.

This was 'a stark reminder that late-season hurricanes can still affect travel', said Megan Moncrief, spokesperson for Squaremouth, warning travellers that it is not possible to buy travel insurance cover for a storm-affected destination after the storm has been officially named. In late November, Allianz Travel Insurance reported that unusually early and severe winter storms (dubbed Avery, Bruce and Carter) in the northeast US had led to 400 claims from customers whose travel plans had been disrupted.

Allianz Global Assistance says the numbers underline the need for vacationers to have insurance in place well in advance of such events. “It could become a big issue, especially for trip cancellation, but also for delay and interruption,” said Justin Tysdal, CEO and Co-founder of Seven Corners. “Any time you have a large number of people travelling to a destination that is suddenly, drastically changed, it is key.”

Could that be good news for insurers, making clients more willing to buy their insurance well ahead of travel, or to consider costlier policies that cover them in any event? “It is possible that the uncertainty about these types of issues could encourage more people to buy 'cancel for any reason' [policies],” Tysdal told ITIJ. Such cover typically costs 40-per-cent more than a standard travel policy and is typically restricted to 75 per cent of non-refundable trip expenses but allows insureds to cancel their trip if they feel that it is unsafe to visit their planned destination.

Travel insurers seem to be sanguine about the issue, and generally agree that actions to deal with claims related to extreme weather events and their knock-on effects are already in place in their policies. Insurers typically set cut-off dates for future coverage when an event is no longer deemed to be an ‘unforeseen risk’.

avalanches in popular Himalayan trekking regions such as Ladakh have increased in terms of frequency and intensity in recent decades

“We have adequate protection in our policies to say [such events] are excluded from future coverage after being deemed to be no longer 'unforeseen',” said one industry source, off the record. “We set cut-off dates for events such as floods or fires, depending on the advice of authorities. We may just be invoking [such caveats] more often, but our book would be protected.”  

Cancellation cover critical

“The travel insurance industry is certainly very well aware of the potential impact that global changes in weather events – more extreme weather happening more frequently – could have on people’s travel plans and travel insurance more generally,” said Malcolm Tarling, Chief Media Relations Officer at the Association of British Insurers.

“Increasing global extreme weather incidents could lead to more travellers looking to cancel travel plans. Travel insurance policies may cover cancellation when government departments such as the UK Foreign and Commonwealth Office advise against travel, as opposed to the so-called disinclination to travel, which is not generally covered under cancellation.”

the numbers underline the need for vacationers to have insurance in place well in advance of such events

According to a survey by Visit California, the state's tourism organisation, 11 per cent of those planning a California vacation had cancelled travel to the state as a result of the devastating autumn wildfires. Many of those trips were to areas unaffected by the fires, according to Visit California's President Caroline Beteta, who was reported as saying that a 'common perception that the majority of California is burning' had prompted would-be visitors to cancel travel to destinations hundreds of miles from the fires, and even trips planned for some months ahead. As Winter Storm Avery peaked in mid-November, leading to hundreds of flights being cancelled or delayed at airports, including those in New York, Washington DC, Philadelphia and Blatimore, airlines said they would allow flyers to cancel or rebook their flights if their travel was affected.

As well as the immediate impact of storms, floods or fires, insureds may seek to cancel for fear of illness, meaning even more claims. During the California fires, parts of the state experienced the worst air quality in the world; such events are a powerful disincentive to travel for insureds prone to respiratory problems such as asthma, empysema, COPD or bronchitis. Floods may also increase the risk of water-borne diseases such as cholera.

The travel insurance sector must brace itself for more payouts due to climate change-related events, and for the increased administrative burden of dealing with such claims. Fortunately, insurers already seem quite well-prepared to deal with an increasingly stormy future.